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New Report Examines Borrowing and Ability to Repay Student Loans

October 18, 2013

Approximately two thirds of students borrow to fund their undergraduate education, according to a new report released by the Department of Education's National Center for Education Statistics. Degrees of Debt examines borrowing and loan repayment of three cohorts of undergraduates at Title IV eligible schools who graduated in 1993, 2000, and 2008.


The percentage of students who borrowed for their undergraduate degree increased from 49 percent of the 1993 cohort to 66 percent of students in 2008. Important differences in borrowing patterns emerge when students' financial situations are considered. For example, dependent students whose families are in the bottom half of the income distribution borrow at higher rates than those in the upper half of the income distribution. This holds true at both public and private nonprofit 4-year schools. For all three cohorts, low-income students attending private nonprofits were most likely to borrow for their education.

The cumulative amount of debt borrowers faced also grew with each successive cohort, increasing from $15,000 for the class of 1993 to $24,700 for the class of 2008 (debt figures are measured in 2009 USD). The cumulative debt from federal loans grew substantially from 1993 to 2000 due to a change in lending caps. The growth in federal debt, however, has not been as rapid as total debt. This reflects the increased use of private loans to fund students' educations. By 2008, private loans accounted for approximately one quarter of student loans.

Cumulative debt also varied by Pell recipient status. While both Pell recipients and their non-recipient counterparts saw increases across the three cohorts, Pell recipients had larger cumulative debt in 2000 and 2008. Borrowing was also related to employment status. Students who worked while enrolled in school borrowed at higher rates than those who did not work.

Loan Repayment

More students from the class of 2008 were in deferment, forbearance, or default one year after graduating, compared to the earlier two cohorts (18 percent in 1994, 25 percent in 2001, and 29 percent in 2009). Additionally, the percentage of students who had completely paid off their loans decreased from 17 percent in 1994 to 12 percent in 2009.

The ratio of federal loans to annual income is defined as a student's debt burden. Just as borrowing has increased, so has the average debt burden, rising from 49 percent for the class of 1993 to 62 percent for the class of 2008.
The report also evaluates the average monthly loan payment as a percentage of monthly income one year after graduation. A ratio of 12 percent or greater is considered cause for concern. In 2009, the average ratio was 13 percent. Public 4-year schools saw significant growth in this ratio from 2001 to 2009 (9 percent to 12 percent), as did private, nonprofit 4-year schools from 1994 to 2009 (11 percent to 16 percent). In 2009, 31 percent of students had a debt ratio greater than 12 percent. Furthermore, a greater percentage of students graduating from private, nonprofit 4-year schools had high ratios compared to students graduating from public 4-year institutions (39 percent and 26 percent, respectively).

Postgraduate Plans

The percentage of students who were enrolled in graduate school one year after completing their undergraduate degrees increased in each successive cohort (16 percent to 21 percent to 25 percent). However, there does not appear to be any correlation between debt levels and graduate school matriculation. Additionally, no correlation existed between debt levels and students' inclination to move in with their parents in the earlier two cohorts. In 2009, however, students who borrowed more moved in with their parents or in-laws more frequently than non-borrowers.


James D. Ward
Research Analyst